Truckload Gains in August after Poor Second Quarter

This story appears in the Sept. 7 print edition of Transport Topics.

After a grim season of second-quarter truckload earnings reports, robust August postings on a key freight load board hint the month just ended might be a turning point for the truckload sector.

TransCore’s 3sixty Freight Match load board showed an unusually strong August, especially during the second half of the month, according to company Vice President David Schrader.

“Usually, we’ve seen in recent years a 12% decline from July to August, but this time there was a 15% uptick. That’s going counter to seasonality,” Schrader said. He added that postings were comparable with June, the load board’s busiest month this year.

Schrader said this was not merely a good two-week stretch. He said August started well, gained momentum and finished strong.

“Our volumes are up by 30% over the first quarter,” said John Paugh, CEO and owner of Carter Express, Anderson, Ind. Paugh said his 640-truck carrier does much of its work with the automobile industry.

“It’s hard to say whether this is from the Cash for Clunkers program, or a more general recovery,” Paugh said.

If this is the start of a turnaround, business has a long way to travel. A month ago, truckload carriers were reporting grim levels of business for the April-to-June period. At least five publicly traded carriers had operating ratios — expenses as a percentage of revenue — in excess of 100, meaning they lost money even before making interest payments and paying taxes.

“The freight market was very challenging in second-quarter 2009. However, freight volumes improved from the extremely weak shipping levels experienced during first quarter 2009,” Werner Enterprises said in its quarterly report.

“The company experienced some seasonal freight improvement as the quarter progressed from April to May to June 2009. However, second-quarter 2009 freight comparisons were well below volumes during the same period in 2008, in part since June 2008 was the strongest freight month for the company during 2008,” Werner said.

In addition to increases in operating ratio, pricing also was poor. At least eight public carriers reported declines in yield, as measured by revenue per loaded mile, from the second quarter of 2008. The truckload divisions of J.B. Hunt Transport Services and Universal Truckload Ser-vices posted declines in excess of 10%.

“Truckload rates are at their minimum now, with base load rates almost 5% below the level a year ago, and spot prices down several times that,” said trucking economist Noel Perry, formerly with Schneider National and now with FTR Associates.

“We expect a slow recovery in rates over the next six months as fleets are able to right-size their networks against the now stable volumes,” Perry said.

While reporting that second-quarter trucking company failures declined from year-ago levels (8-24, p. 1), stock analyst Donald Broughton of Avondale Partners described a truckload sector still bloated with excess capacity.

“With spot rates still 25% or more below contract rates, contract rates will be sequentially negative in coming quarters,” Broughton said. “In addition to the asset utilization declines already experienced, contract pricing weakness would cause truckers to continue to struggle with profitability for the next several quarters. Without an exodus of capacity or a material increase in demand, spot market prices cannot get better.”

Analyst John Larkin told clients of Stifel, Nicolaus & Co. last month that the truckload sector enjoyed strong growth during the 1980s and ’90s and even much of this decade, but future growth might be limited because of the bind in which American consumers are placed.

“The American consumer’s boundless appetite to consume has been the primary engine that has driven the growth of [truckload and intermodal] carriers . . . This consumption pattern looked like it would continue ad infinitum, immune from economic contraction, even as the industrial segment of the economy went through a number of slowdown,” Larkin said.

As a result of the longest recession since the end of World War II, though, Larkin said consumers are paying down debt and saving, meaning they are buying far fewer goods that need to be moved on trucks.